1. The assessees who are a limited company obtained on lease a plot of land of the Backbay Reclamation in Bombay and put up a residential building which could be adapted for use as a hotel, and furnished the same by installing furniture and fixtures and let it out to a tenant under a deed dated August 30, 1943, for six years for using it as a hotel. After the expiry of the first period of lease another deed of lease was executed on August 13, 1949. Under that lease the lessee agreed to pay a net monthly rental of Rs. 5,950, for the lease of the building and at the rate of Rs. 5,000, for the hire of furniture and fixtures. Initially, the Income-tax Officer assessed the income received under the lease under section 12 of the Income-tax Act. For the assessment year 1952-53, the assessment proceedings were brought before the Tribunal and the Tribunal observed in the course of its judgment, thought that question did not arise in the case, that 'the question whether the income from that property should be computed under section 9 or under section 12 deserves further scrutiny.' The Income-tax Officer then computed for the assessment year 1953-54 income out of the building under section 9 of the Income-tax Act and the income derived from hiring of the furniture and fixtures under section 12 of the Act. Against the order passed by the Income-tax Officer, the assessees appealed to the Appellate Assistant Commissioner. The Officer substantially confirmed the order passed by the Income-tax Officer. There was an appeal by the assessees to the Tribunal and the Tribunal affirmed the view of the taxing authorities. At the instance of the assessees, the Tribunal has referred the following question :
'Whether on the facts and circumstances of the case, the income derived from letting of the building constructed on plot No. 7 is properly to be computed under section 9 and 10 or under section 12 of the Income-tax Act ?'
2. The question whether the income derived from the letting of the building and the furniture can be assessed under section 10 is easily answered. Neither before the Income-tax Officer, nor before the Appellate Assistant Commissioner, was the question ever advanced that the assessees were letting out the building as a business venture. This contention was advanced for the first time before the Tribunal and the Tribunal negatived that contention holding that there were no materials which justified it. It was suggested that from the ownership of the property used as asset of a business concern income was being obtained. In our view, there is nothing in the deed of lease which supports the contention of the assessee, nor are there any materials on the record which justify that inference. The income derived from the letting of the building and the furniture and fixtures cannot be computed under section 10 of the Act.
3. Section 9 of the Income-tax Act makes provision for computation of the income under the hear 'Property'. Section 10 makes provision for computation of income received from business and section 12 for computation of income received from other sources. By clause (3) of section 12 which was added by Act 7 of 1939 it was enacted that where an assessee lets on hire machinery, plant or furniture belonging to him, he shall be entitled to allowances in accordance with the provisions of clauses (iv), (v), (vi) and (vii) of sub-section (2) of section 10. Evidently by enacting this clause, the Legislature intended to give the benefit of the four clauses of section 10(2) to an assessee who was not carrying on a business of letting out on hire machinery, plant or furniture but who had as an owner of the property let out the same. By clause (4) which was added by Act 23 of 1941, an additional provision was made granting the benefit of the provisions of clauses (iv), (v), (vi) and (vii) of sub-section (2) to the owner of the building when he had let on hire machinery, plant or furniture belonging to him, and also building, and the letting out of the building was inseparable from the letting of the machinery, plant or furniture. For computation of income received from buildings under section 9, a provision for granting allowances in accordance with clauses (iv),(v), (vi) and (vii) of sub-section (2) of section 10 has not been made. Evidently by clause (4) of section 12, a different category was sought to be created in respect of which the prescribed allowances were to be given to the owner of the building in the computation of his income. Clauses (3) and (4) of section 12 have, in our judgment, to be read together. By clause (3) an assessee becomes entitled to the prescribed allowances before his income received from letting out of machinery, plant or furniture is included in his total income, and to a similar allowance in respect of certain buildings under clause (iv). But that benefit can only be given in respect of buildings, provided the conditions prescribed by sub-section (4) of section 12 are fulfilled; and these conditions are that there is a letting on hire machinery, plant or furniture belonging to the assessee, that along with that letting the buildings are let out and that the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture. In our judgment, it was intended by the Legislature that the primary letting must be of the machinery, plant or furniture and that together with such letting or along with such letting there is a letting of buildings, the two lettings being inseparable from each other. It is only if these conditions are fulfilled that the taxable income of the buildings will be computed under sub-section (4) of section 12. We are unable to accept the argument of Mr. Palkhivala that if there is a letting on hire of machinery, plant or furniture and there is also a letting of buildings and that the two lettings are inseparable, in computing the income from the buildings the lessor will be entitled to the allowances under clause (iv), (v), (vi) and (vii) of sub-section (2) of section 10. The condition of inseparability of the lettings is not the only condition prescribed by the Legislature to enable the lessor of the building to qualify for the benefits of the allowances under the specified clauses of section 10(2). We are, therefore, of the view that if the primary letting is of machinery, plant or furniture and the secondary letting is of the buildings, and the two lettings are inseparable, then only will the provisions of sub-section (4) of section 12 apply.
4. Mr. Palkhivala contends that even if that be the true interpretation of sub-section (4) of section 12, in the present case, the primary letting is of the furniture and fixtures and the secondary letting is of the building. He invites our attention to the fact that a substantial amount has been spent for providing furniture and fixtures, and the monthly rental of the furniture and fixtures alone is Rs. 5,000 whereas the rental of the building is Rs. 5,950. Mr. Palkhivala contends that under the terms of the lease no special importance having been given to the letting of the building on the one hand or furniture and fixtures on the other, the court must have regard to the fact that the entire unit was intended to be let for the purpose of a hotel and was in fact let out for the purpose of a hotel and was in fact let out for the purpose of running a hotel, boarding and lodging house or a restaurant, and that it must be held that the intention was to let out the unit in which the primary letting was of the furniture or fittings or fixtures. We are unable on the plain words used in the document to accept that contention. What has been let out is the building constructed by the assessees, and for making the building fit for running a hotel or a boarding and lodging house or a restaurant, furniture and fixtures have been installed. It cannot be said in the case of such a lease that the lease was primarily of furniture and not of the building.
5. Mr. Palkhivala invites our attention to the facts that in paragraph 7 of the judgment of the Tribunal, an erroneous statement was made by them as to the true effect of section 10(2)(vi) and (v) but we do not think that anything turns in this case upon the alleged erroneous statement relating to the true effect of these clauses.
6. On the view taken by us, the question will be answered as follows : 'The income from the building will be computed under section 9, income from furniture and fixtures under section 12(3) and that no part of the income is taxable under section 10.'
7. The assessee to pay the costs of the Commissioner. No order on the notice of motion.
8. Reference answered accordingly.